Observations on economics, the academy, the wider world, and things that run on rails.

28.3.14

PIGOU NO GO?

At The Washington Examiner, Philip Klein proposes to abolish the mortgage interest deduction, arguing from what seems like a sound first principle. "The purpose of taxes is to raise money to finance government services, not to manipulate human behavior or economic activity." Here's where understanding a little economics is useful. Attractive though it might be to invoke a philosophical principle, such as "humans are not gerbils running a maze for rewards," or "simpler is better," a tax, like any other price, functions to allocate resources. Thus taxes can be changed in such a way as to allocate resources with the least loss of efficiency, or not.